Brown-Forman Corporation (NYSE: BFA, BFB) reported financial results for its second quarter and the first half of fiscal 2023. For the second quarter, reported net sales1 increased 10% to $1.1 billion (+16% on an organic basis2) compared to the same prior-year period. Reported operating income decreased 2% to $313 million (+8% on an organic basis) in the quarter, and diluted earnings per share decreased 4% to $0.47.
For the first six months of the fiscal year, reported net sales increased 11% to $2.1 billion (+17% on an organic basis) compared to the same prior-year period. Reported net sales growth was negatively impacted by six percentage points of foreign currency exchange. In the first half, reported operating income increased 8% to $656 million (+19% on an organic basis) and diluted earnings per share increased 11% to $0.99.
Lawson Whiting, Brown-Forman’s President and Chief Executive Officer, stated, “Brown-Forman has once again displayed tremendous resolve, delivering double-digit revenue growth for the first half of fiscal 2023. Consumer demand for our brands remains strong. We have set the organization on a path for continued growth with our sustained brand investments, recently announced acquisitions, product innovation, and strategic relationships.”
Whiting added, “Despite foreign exchange and inflationary headwinds, Brown-Forman is on track to deliver another solid year of growth in fiscal 2023. The Board’s recent approval of a 9% increase in the regular quarterly cash dividend reinforces our shared confidence in the long-term health of our business.”
First Half of Fiscal 2023 Highlights
- Delivered broad-based reported net sales growth across all geographic clusters and the Travel Retail channel driven by strong consumer demand and the continued rebuilding of distributor inventories
- Portfolio growth was led by:
- Jack Daniel’s Tennessee Whiskey with reported net sales growth of 9% (+18% organic),
- Sustained double-digit growth of Woodford Reserve with reported net sales of 39% (+40% organic), and
- Ready-to-Drinks3 (RTDs) with double-digit reported net sales growth of 14% (+20% organic) propelled by Jack Daniel’s RTDs and New Mix
- Reported gross margin contracted by 130 basis points, driven by inflation, supply chain disruption costs, and foreign exchange
- Reported advertising expense increased 19% (+25% organic)
- Diluted earnings per share increased by 11%
First Half of Fiscal 2023 Brand Results
- The Jack Daniel’s family of brands’ reported net sales growth of 9% (+17% organic) was fueled by Jack Daniel’s Tennessee Whiskey, which experienced broad-based growth across all geographic clusters and the Travel Retail channel. Higher pricing and an estimated net increase in distributor inventories positively impacted reported net sales, partially offset by the negative effect of foreign exchange. Continued consumer desire for convenience and flavor drove gains in Jack Daniel’s RTDs, Jack Daniel’s Tennessee Honey, and Jack Daniel’s Tennessee Fire. Innovation also contributed to net sales growth with the Jack Daniel’s Bonded series launch.
- Premium bourbons3, propelled by Woodford Reserve and Old Forester, delivered 39% reported net sales growth (+40% organic) driven by higher volumes in the United States, which included an estimated net increase in distributor inventories as glass supply constraints eased.
- Ready-to-Drinks delivered double-digit reported net sales growth driven by consumer preference for convenience and flavor. Jack Daniel’s RTDs/Ready-to-Pours (RTPs) grew reported net sales by 9% (+15% organic) led by Australia and Germany, partially offset by the negative effect of foreign exchange. New Mix delivered 48% reported net sales growth (+46% organic) fueled by Mexico with market share gains in the RTD category.
- Reported net sales for the tequila portfolio increased by 10% (+11% organic) led by el Jimador and Herradura. el Jimador grew reported net sales by 16% (+18% organic) and Herradura increased reported net sales by 9% (+9% organic) driven by volumetric growth in the United States. Herradura’s reported net sales were positively impacted by an estimated net increase in distributor inventories as supply constraints eased.
First Half of Fiscal 2023 Market Results
- Reported net sales grew across all geographic clusters and the Travel Retail channel, driven by continued consumer demand, brand strength, and the rebuilding of distributor inventories with some easing of supply chain constraints compared to the first half of fiscal 2022. Foreign exchange headwinds partially offset this broad-based growth.
- Reported net sales in the United States grew 11% (+11% organic) with volumetric gains, a favorable mix, and higher pricing across the portfolio. Growth was led by higher volume and pricing from Woodford Reserve and Jack Daniel’s Tennessee Whiskey. Korbel California Champagne partially offset the growth due to the combination of higher pricing and lower volumes.
- Developed International3 markets experienced strong consumer demand as reported net sales increased 3% (+14% organic) due to volumetric growth from Jack Daniel’s Tennessee Whiskey and Jack Daniel’s RTDs. Spain, Korea, and Canada led reported net sales growth in developed international markets.
- Emerging3 markets reported net sales increased 14% (+27% organic) led by the growth of Jack Daniel’s Tennessee Whiskey in Brazil and Sub-Saharan Africa, as well as sustained double-digit growth in Mexico fueled by New Mix.
- The Travel Retail channel continued to deliver strong growth with a reported net sales increase of 60% (+67% organic) driven by higher volumes across much of the portfolio as travel continued to rebound.
First Half of Fiscal 2023 Other P&L Items
- Reported gross profit increased 8% (+17% organic). Gross margin contracted 130 basis points to 58.8%, driven by the impact of inflation on input costs, costs related to supply chain disruptions, and the negative effect of foreign exchange. This decline was partially offset by favorable price/mix and the removal of E.U. and U.K. tariffs on American whiskey.
- Reported advertising expenses grew 19% (+25% organic) driven by increased investment in the United States to support Jack Daniel’s Tennessee Whiskey, Herradura, the launch of the Jack Daniel’s Bonded series, and Woodford Reserve. Reported selling, general, and administrative expenses increased 7% (+11% organic), largely driven by higher compensation-related expenses.
- The company’s reported operating income increased by 8% (+19% organic).
- Earnings per share increased 11% to $0.99, driven by the increase in reported operating income and the benefit of a lower effective tax rate.
First Half of Fiscal 2023 Financial Stewardship
On November 17, 2022, the Brown-Forman Board of Directors approved a 9% increase in the regular quarterly cash dividend to $0.2055 per share on its Class A and Class B common stock. The dividend is payable on January 3, 2023, to stockholders of record on December 2, 2022. Brown-Forman has paid regular quarterly cash dividends for 79 consecutive years and has increased the regular cash dividend for 39 consecutive years.
Fiscal 2023 Outlook
The company anticipates stronger growth in fiscal 2023 despite global macroeconomic and geopolitical uncertainties. Accordingly, we update our guidance for fiscal 2023 as follows:
- Reflecting the strength of our portfolio of brands, stronger consumer demand, and the easing of supply chain constraints, we expect organic net sales growth in the high-single digit range.
- Higher inflation, supply chain disruption costs, and the negative effect of foreign exchange drove the reported gross margin decline during the first half of fiscal 2023. For the full year, we expect the reported gross margin to be consistent with the first half of fiscal 2023.
- Based on the above expectations, we anticipate high-single-digit organic operating income growth.
- We expect our fiscal 2023 effective tax rate to be in the range of approximately 22% to 23%.
- Capital expenditures are planned to be between $190 to $210 million.